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[IMG]http://valleywag.com/assets/resources/21tax.190.jpg[/IMG]I'm beginning to worry for the titans of private equity and venture capital. They were supposed to be the new masters of the universe, political donors so powerful that no mere Senator would dare stand against them. And yet the proposal to tax their fees like mortal income -- outrageous! -- is still alive.The New York Times reports that Max Baucus of Montana and Charles Grassley of Iowa, two ranking members of the Senate Finance Committee, are still mulling a change in the treatment of carried interest. That's the share of profits, usually 20%, taken by hedge fund managers and venture capitalists -- which has been taxed as capital gains, at 15%, rather than income, at 35%. To inevestors, the lower tax rate is a proper recognition of the risks they take; to their critics, it's simply an indefensible tax break.
So, what's going to happen? Most likely, the proposal still gets squashed by one of private equity's friends in Congress, like Chuck Schumer, Senator for New york. Even if Congress, in a populist mood, does tap private equity for tax revenue, venture capitalists are likely to escape. While many private equity firms produce profits by trimming costs at the companies they take over, VCs can argue they create jobs.
Even if there are no special exemptions for venture funds, they can simply boot the universities and other organizations that back them, and rely on the partners' own financial resources. Sure, the funds will be smaller, and younger professionals will find it harder to get established. Given the surfeit of startup capital right now, and wannabe investors, that might not be such a bad thing.
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So, what's going to happen? Most likely, the proposal still gets squashed by one of private equity's friends in Congress, like Chuck Schumer, Senator for New york. Even if Congress, in a populist mood, does tap private equity for tax revenue, venture capitalists are likely to escape. While many private equity firms produce profits by trimming costs at the companies they take over, VCs can argue they create jobs.
Even if there are no special exemptions for venture funds, they can simply boot the universities and other organizations that back them, and rely on the partners' own financial resources. Sure, the funds will be smaller, and younger professionals will find it harder to get established. Given the surfeit of startup capital right now, and wannabe investors, that might not be such a bad thing.
[IMG]http://feeds.gawker.com/~a/valleywag/full?i=gQvu0A[/IMG]
More...